Indianapolis home prices are outpacing wage growth, threatening to push the city’s housing market out of reach for many would-be buyers.
Marion County is the 55th-most affordable U.S. county for homebuyers out of 447, according to ATTOM Data Solutions. Indianapolis residents who earn the city’s average income needed to spend 21.1 percent of their wages to buy a median-priced house during the fourth quarter, according to ATTOM’s fourth-quarter affordability index.
Historically, Indianapolis residents have spent slightly more — an average of 21.9 percent of their income — to buy a house, according to ATTOM. That means Indianapolis remains affordable by its own standard and in comparison to other cities. But it’s trending in the wrong direction for buyers.
Indianapolis’ affordability peaked in the first quarter of 2012, said Daren Blomquist, the senior vice president of communications at ATTOM. Since then, it has been getting steadily more difficult for average wage earners to buy houses in Marion County.
“The trend has been slowly becoming less affordable if you look over the last few years,” Blomquist said. “It is getting close to that unaffordable territory, but it’s not quite there yet. The reason, I think, in looking at the data, is we are seeing home prices growing.”
Home prices this year increased by an average of 4 percent, while wages rose by 3 percent, according to ATTOM. The median sales price in Marion County during the fourth quarter was $143,797.
Real estate trends in Marion County suggest prices will continue to rise in 2017. A dearth of houses on the market in recent months has forced buyers to compete against one another, creating bidding wars in some cases.
There were 3,589 houses for sale in Marion County in November, an eye-popping 23.7 percent drop from November 2015, according to residential real estate firm F.C. Tucker Co. The average sales price for November was $150,734.
“Inventory will continue to be tight, and buyers will need to continue to be decisive,” F.C. Tucker CEO Jim Litten said in a statement. “In this fast-paced market, multiple offers should be expected.”
Another reason prices are rising is that institutional investors — companies that buy several houses at once and turn them into rental properties — are increasingly targeting Indianapolis. Institutional sales accounted for 2.7 percent of Marion County real estate transactions in the third quarter, up from 1.3 percent a year earlier, Blomquist said.
“It’s attracting investors largely from out of state,” he said. “That can be a problem for affordability because those investors are not as constrained by income as local buyers. They’re willing to pay more than local buyers are, and that pushes up prices faster.”
The average weekly wage in Marion County was $971 during the second quarter, according to the most recent data available from the Bureau of Labor Statistics. That’s a 3 percent year-over-year increase, yet down from $1,027 in early 2012, when Marion County housing was most affordable.
“Home prices are growing much faster than wages, and that’s not sustainable for the long term,” Blomquist said.
The most affordable U.S. counties for homebuyers are Clayton County, Ga., which includes Atlanta (10.4 percent of average wages needed to buy the median-priced home), Roane County, Tenn., which includes Knoxville (11.8 percent) and Bay County, Mich. (13 percent).
The least affordable counties are Kings County, N.Y., which is Brooklyn (127.2 percent), Santa Cruz County, Calif. (113.7 percent) and Marin County, Calif., which includes San Francisco (111.9 percent).
Call IndyStar reporter James Briggs at (317) 444-6307. Follow him on Twitter: @JamesEBriggs.